Norm Werner

Last week's Business Week has a big, front page story about the impending wave of commercial real estate foreclosures that certainly is scary. The article talks about how many really big companies and really big, important properties are in really big trouble and how many will end up falling into foreclosure or bankruptcy in 2010. Great, just what we need, another tsunami of foreclosures and bankruptcies to help the economy along. The issues in that space are as complex and muddled as they were in the residential space, perhaps more so.

I can see this happening even in my little village, where "office space available" signs are all over and store fronts sit empty after businesses have failed. Driving around the area there are tons of commercial buildings sitting empty and starting to deteriorate. We have an especially large supply of old manufacturing sites that have been abandoned in Michigan, most from the automotive companies, but quite a few from other companies that have shipped manufacturing operations to China or elsewhere.

This is a problem that the Federal government might have trouble helping with. I can't imagine a "first-time manufacturer" program to subsidize factory purchases; although there are state tax breaks available to those willing to locate their manufacturing in Michigan. Many of the empty manufacturing plants have major environmental issues that future owners might have to deal with, too. That can be a deal breaker for a start up company that is just looking for a place to set up a plant. There is also a glut of both retail and office space available, which is a holdover from the giddy days of the building bubble in the late 1990's and early 2000's. The days of a strip mall on every corner are over, but now what are we to do with all of that empty space? The other big issue in our area is the huge negative impact on the tax base that will be caused by the expected 40-70% drop in commercial property values. A recent article in the local newspaper suggests that this is the issue that will sink several municipalities and school districts into failure. In Michigan, we have many small cities that are heavily industerial or commercial and they will likely go under when the tax money dries up from these sources.

Hopefully we can get through this next wave of real estate foreclosures without swamping the national economy again. There doesn't seem to be the stomach for many publicly funded bailouts in this space, at least not yet. We'll have to see if there are some commercial owners who are "too big to let fail." I can just see the outcry if we all end up bailing out The Donald or some other high profile commercial landlord.

In Michigan there are taxes levied on the sale of a house that are called Transfer Taxes - one at the state level and one at the county level. With lower property values due to our struggling economy, many homeowners have been able to take advantage of an exemption contained in the Michigan Transfer Tax Act. If a seller meets the criteria, they would be exempt from paying the state transfer tax. Following are the criteria:

- The property must have been occupied as a principle residence - classified as homestead property.

- The property's SEV for the calendar year in which the transfer is made must be less than or equal to the property's SEV for the calendar year in which the seller acquired the
property.

- The property cannot be transferred for consideration exceeding its "true cash value" for the year of the transfer.

For example:If the SEV of the homestead principle residence when acquired in 2005 is $100,000 and the current SEV on the property is $90,000, then the first two criteria have been met.

To establish the "true cash value" of the property, you must double the current SEV at the time of transfer. In this scenario, the true cash value would be $180,000. If the property sold for $170,000, then the 3rd criteria has been met of Exemption "u" as designated by the Michigan Transfer Tax Act.

Sellers who believe they may be eligible have up to 4 years from the transfer date to file for the exemption. It is also important to note that there are no similar exemptions in the County Real Estate Transfer Tax Act. The state transfer tax is the larger of the two taxes that are charged on a sale, equal to $7.50 for each $1,000 of the sale value; so, this can be a significant potential savings.

If you were a seller earlier in the year and didn't know about this exemption, you can still file a claim for it and get a refund of the transfer taxes that you paid on the sale, assuming that your sale meets all three criteria discussed above.

It is up to you as the seller to find out what the SEV was at the time that you bought the property, which you can do by calling the County Treasurer's office and having them look that up for you. They can also tell you what the SEV was this year at the time that you should, but you should already know that from this year's tax assessment notice.

You will be required to fill out an affidavit swearing that the information is correct when you file for the exemption; so, don't try to "game the system" on this, because the penalty is fairly severe. The law reads - "If after an exemption is claimed under this subsection, the sale or transfer of property is found by the treasurer to be at a value other than the true cash value, then a penalty equal to 20% of the tax shall be assessed in addition to the tax due under this act to the seller or transferor."

Every little bit helps these days; so, put in your claim, if you sold or are selling and your sale meets the criteria.

Sometimes talking to my sellers and trying to explain to them why their house isn't selling is like trying to discuss why someone's favorite daughter didn't win the beauty pageant. It's not that their daughter is ugly; it's just that she was competing against other girls who were significantly better looking. Maybe the losing daughter was a few pounds overweight or a few years older than the other girls (and it showed) or just didn't have the talent or the interview skills - there are always reasons and some are easier that others to explain in ways that won't offend the parents.

The same is true with houses, especially in the current market in Michigan. I show a lot of houses in the $200-300 price range, which in Michigan is a good price range and in which you can get a nice house in the 1,800 - 2800 Sq Ft range. Many of those houses would have sold in the $300-400K range a couple of years ago. Most have 3-4 bedrooms, 2 and a half baths, 2-3 car garages, full basements and nice yards (most under 1 acre) in newer neighborhoods. Many were built in the 2000's.

But then the differences start showing through. Some have nicely finished basements, while some are still sitting there on raw concrete basements with maybe an old piece of carpet thrown down for the kids to play on. Some have hardwood floors while some are carpeted wall-to-wall directly over parcel board flooring. Some have fireplaces and some don't. Some have nice decks or patios out back while some still have boards across the door wall to prevent you from opening them and falling out the back. Some have walkout or daylight basement and some have dark regular basements. There are lots of differences like that that make if fairly easy to distinguish and rank the similar houses in the subs.

Then you have to try to also rank them against similar sized houses that were built in different eras. That 1970's house that is of similar square footage and may be on a bigger lot or that early 1980's house in what was an upscale sub at the time. How can you compare them? Not very easily, it turns out and not very directly. Most of the older houses have such different floor plans that making direct comparisons is impossible. Sometime in the mid- to late-1980's builders in this area changed directions to start building houses with everything for the owners on the entry level vs. the traditional colonial floor plan of all bedrooms up. They also started building floor plans around great rooms and gourmet kitchens. So, now the best of the 1970's traditional colonial homes look really dated. They don't have great rooms with volume ceilings. They don't normally have large, gourmet kitchens. They don't have master bedroom suites with huge master baths and walk-in closets. They aren't ugly; they just don't fit in well in the current beauty contest.

In addition, many of the homes built back in the 1970's and early 1980's have wallpaper and wood paneling everywhere. That was big back then. I know because I did it to my own house back then (and later had to strip it all off). And there was a color thing going on in the baths and kitchens back then that has stayed with many of the houses built in that ear - turquoise and harvest gold and pink or mauve was all the rage. Many of the houses still have all of those old, colorful baths and sinks and toilets in them. And in the kitchens you'll find Corianä cabinet tops if you're lucky, but mostly just Formica. Unfortunately many of these houses have been in the same hands since they were built, so little, if anything has been updated, including the mechanicals (if it ain't broke, don't fix it). By now almost everything major is at or near its end of life - furnace, water heater roof, etc.

So, now those owners put their 20-30 year old houses on the market, convinced that they can compete in the teen beauty contest that they are entering. The outcome is predictable. They may get a few showings but no offers or they may get a few offers that they consider to be low-ball. In most cases those low-ball offers actually reflect what the market price of the place is, based upon the need to do extensive updating. And then I get to have the "your daughter's not ugly, but..." conversation with them (again). I get the "it was good enough for us for all of these years..." pushback and the "I won't give it away..." retort or the "well then, they should just make us an offer..." rationalization. Maybe that's when I lead them from the backstage vantage point in their daughter's dressing room out to the front of the stage to see what the other contestants look like (a few visits to similar active homes). Sometimes there is a catharsis that comes out of that, but many times it's just further denial of the truth, "well, I've never liked those big high ceiling room myself, I think they're ugly."

Eventually, even the most stubborn owner will eventually capitulate to the feedback from the market and price the property to sell. Unfortunately that is all to often when they are on their 2^nd or 3^rd listing agent and well into their 2^nd year on the market. By then they have probably lost $25-50,000 more than they needed to had they priced properly in the first place. In our market houses continue to lose about 1.2%-1.4% per month in value; so, being adamant that their not really ugly daughter of a house can compete with the younger houses costs owners between $2,400 to $5,000 a month. Ouch! Was that a blemish that just popped out on your daughter's face?

Today is memorial day and one of the best days of the year in Milford, Michigan - the quintessential small town America. Today at 11 AM I will be marching through town with hundreds of other Vets, as we celebrate those who served their country in the military. For many in Milford, it is their favorite parade of the year (we have three major parades - Memorial Day, The Forth of July and the Christmas Parade - as well as several minor parades for things like the Little League, the High School Homecoming, and Halloween. The parades and the various festivals that we have during the year all result in Main St being blocked off for a few hours or a few days (the Milford Memories festival lasts for three days. It's all quite Mayberry RFD-like and I wouldn't change a thing. This is small town America at its best.

In addition to the veterans, there will be military vehicles, with many older Vets riding down Main St in jeeps or other vehicles; as well as fly-overs by war planes of all vintages from modern jets to WWII bombers to trainers. The parade route is lined by thousands of people who come from all over to stand and applaud as the vets march by, many with "Thank You" signs. As a Viet Nam vet, I can tell you that these parades are the only welcome or thanks that those of us who went over there ever got and it does feel good.

So, if you don't have other plans, come on out to Milford this morning and watch our parade. If you're a vet yourself, join in, the parade is open to all vets. There is always a short ceremony at the end of the parade down in Central Park at the War Memorial. Out parade has grown and been successful largely through the efforts of Joe Salvia from the local American Legion post. This years parade will also be filmed as part of a documentary, "Detroit, Our Greatest Generation," a one-hour, prime time commercial-free special on the sacrifices and contributes from World War II veterans.

The documentary, by the Emmy Award-winning Visionalist Entertainment Productions, is expected to air in December on WDIV, Channel 4. It will include historic footage of World War II, personal accounts and in-depth interviews with veterans. So, who knows maybe you'll get in a shot that's used in the film. See you there - I'll wave as I march by.

I recently commented on a discussion post at one of the professional networking sites that I belong to. The Discussion was kicked off by a comment from another Realtor that basically expressed disappointment that there hasn't been more client enthusiasm for, nor demand driven by, the $8,000 tax break for first time home buyers. The poster asked if others were experiencing the same thing around the country. my response is below -

We have experienced the same thing and I suspect for the same reasons. While we, as Realtors, got lots of information about this and internalized it; most of our potential customers have yet to really hear about it or to understand what it means. Impossible, you say, given the widespread news dissemination and coverage of this new tax break.

As weird as it may seem to us, we live in a society that has become so good at personalizing our information and entertainment experiences that we now have whole groups of people who are so plugged into their IPods that they don't ever get regular newscasts. These are people who have chosen to not watch television news cast, to not read papers, to not listen to boring news programs on radio (if they even listen to radio at all). How could they have missed this story, we ask? They tuned it out, along with much of traditional media years ago.

Now that's only a portion of the prospect base. Another portion has heard something about it or read something about it, but still don't understand it or they are stuck, like many people today thinking that they can't take advantage of the tax break because they can't scrape together the down payment for a house. What they don't know is that 100% money for mortgage is still available and that there is hope (and movement afoot) to monetize the tax break into a form of bridge loan that will allow them to use it for their down payment.

Who's fault is it that they don't understand or know these things - ours! We need to be out there shouting from the roof tops, holding seminars, writing articles for local papers and generally doing whatever is necessary to get the word out and get the clients educated. Those who are sitting in their real estate offices waiting for the flock of customers to come storming in, ready to go find a house to claim that credit are going to end up like the lonely Maytag repairman. It's not going to happen people! The clients aren't going to come clamoring for your help to get this tax break. You've got to go out and grab them and tell them about it and then tell them again.

So, if you are sitting there wondering where all of the customers are, they are sitting out there wondering where all of the Realtors are who can help them make sense out of all of these programs and tax breaks and loan modifications and short sales and all of the other nonsense that is going on in real estate right now. Anybody know a good Realtor? Maybe they could help. As for us here is my little patch, we're kicking off a series of programs and activities to get the word out and get the client-base educated.

Which is a prefect segue into an announcement that our local Real Estate One office is hosting an open house on June 11, at which we will cover the topic of the $8,000 tax credit and many other topics that buyers and sellers might have questions about. The Open house kicks off at 5:30 with an hour of food and tours and informal discussions with the local Realtors in the Milford office. Then at 6:30 distinguished guests from our Headquarters and from our affliaties will host a set of simultaneous workshops.

The workshops will have Dan Elsea, President of Brokerage Operations for Real Estate One, discussing the state of the real estate market and the trends that he sees. Vicki Ascherl, Vice-President of Business Development will discuss leasing as an option for Buyers and Sellers in this market. Marlene Briolat, Branch Manager for Capital Title will discuss Land Contracts as an option for Sellers and Buyers. Agnes Meisch, Branh Manager for John Adams Mortgage will be talking about the $8,000 Tax Credit for first time buyers, as well as discussing the USDA programs for 100% financing and what it takes to get pre-approved for a mortgage these days. A panel of agents will discuss a variety of other topics and field questions from the audience.

So come and bring your questions. You'll not only get answers to your questions, but we'll have hot dogs and chips, pop and cookies, too. For a printable flyer about the Open House, go to http://www/themilfordteam.com/REO_Open_House_Flyer.pdf - I hope you can make it to that event. You'll be glad that you attended.